Chapter 12 Bankruptcy

Immense debt presents particularly unique challenges for farmers and fishermen in New England as in most cases these business owners’ livelihoods are directly tied to the assets they hold. Where other forms of bankruptcy fail to meet their unique financial needs, Chapter 12 bankruptcy can offer a promising alternative. Chapter 12 bankruptcy is intended to allow a family fisherman or family farmer with regular annual income to continue fishing or farming and restructure debt with court protection. Chapter 12 is designed to eliminate many of the barriers to restructuring that are found in a Chapter 11 Bankruptcy, and reduce the time and expense of obtaining approval of a reorganization plan.

In tailoring bankruptcy law to meet the economic realities of family farming and the family fisherman, Chapter 12 eliminates many of the barriers such debtors would face if seeking to reorganize under either Chapter 11 or 13 of the Bankruptcy Code. For example, Chapter 12 is more streamlined, less complicated, and less expensive than Chapter 11, which is better suited to large corporate reorganizations. In addition, few family farmers or fishermen find Chapter 13 to be advantageous because it is designed for wage earners who have smaller debts than those facing family farmers. In Chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farmer and fisherman reorganizations.

Eligibility for Chapter 12 Bankruptcy

Chapter 12 bankruptcy is available to family farmers and fishermen with regular annual income and allows. The Bankruptcy Code provides that only a family farmer or family fisherman with "regular annual income" may file a petition for relief under Chapter 12. The purpose of this requirement is to ensure that the debtor's annual income is sufficiently stable and regular to permit you to make payments under a Chapter 12 plan. But Chapter 12 makes allowance for situations in which family farmers or fishermen have income that is seasonal in nature. Under the Bankruptcy Code, "family farmers" and "family fishermen" fall into two categories: (1) an individual or individual and spouse and (2) a corporation or partnership. Besides falling into one of these categories, Chapter 12 has additional restrictions as seen in the chart below:

For corporations or partnerships to fall within the second category, they must meet the following additional criteria:

You also cannot file under Chapter 12 (or any other chapter) if during the preceding 180 days you had a bankruptcy case dismissed due to a willful failure to appear before the Bankruptcy Court or comply with orders of the Bankruptcy Court or was voluntarily dismissed after creditors sought relief from the Bankruptcy Court to recover property upon which they hold liens.

How Chapter 12 Works

A Chapter 12 case begins by filing a bankruptcy petition with the Bankruptcy Court serving the area where the you live where the farming or fishing business has its principal place of business or principal assets. You will need to file a (1) schedules of assets and liabilities, (2) a schedule of current income and expenditures, (3) a schedule of executory contracts and unexpired leases, and (4) a statement of financial affairs. In order to complete these documents for filing you will need to compile:

When the debtor files the Petition, the Court appoints a Chapter 12 Trustee to administer the case.  If the court confirms the plan, the Trustee will collect payments and distribute them to creditors.  The Trustee will convene a meeting of creditors within a month of the filing.  The debtor must attend and answer creditor questions about his financial affairs and proposed repayment plan.  Unsecured creditors must file their proofs of claim within 90 days of this meeting.

The Chapter 12 Plan

Absent court extension, the you must file a repayment plan with the petition or within 90 days after filing.  The plan will provide for fixed, regular payments to the Trustee for the repayment of claims over three to five years.  There are three claims in Chapter 12: priority, secured, and unsecured. Priority claims are those granted special status by the Bankruptcy Code, such as most taxes and the costs of the bankruptcy proceeding.  Absent limited exceptions, the plan must provide for full payment of all priority claims.

Secured claims are those for which the creditor may liquidate certain property if you do not pay the underlying debt. Secured creditors must be paid at least as much as the value of their collateral.  Payments to secured creditors can sometimes continue longer than three to five years.   If your underlying obligation was scheduled to be paid over more than five years, you might be able to pay the loan over the original loan repayment schedule if you catch up all arrearages during the plan.

Unsecured claims are not supported by collateral.  The plan need not pay unsecured claims in full, as long as it commits all of your projected "disposable income" (or property of equivalent value) to plan payments over three to five years, and as long as the unsecured creditors receive at least as much as they would receive if the debtor's nonexempt assets were liquidated under Chapter 7.

Confirmation and Discharge

Within 45 days of filing the plan, the court will conduct a confirmation hearing to determine if the plan is feasible and meets the conditions for confirmation.  Creditors may appear and object to confirmation.  Most objections involve feasibility (e.g., Can the debtor make the plan payments?), whether the debtor has pledged all disposable income, or the liquidation test.  If the court confirms the plan, the Trustee starts paying creditors.  If the court denies confirmation, the debtor can modify the plan, convert the case to Chapter 7, or seek dismissal.  The debtor receives no discharge until he completes all payments under a confirmed plan.

We can help you.

If you need assistance reorganizing your finances and are considering filing for Chapter 12 protection we can help. We will take the time to understand your financial situation and determine if a personal bankruptcy is the best option for you. We are innovative in our approach and can help you overcome your financial challenges in these unprecedented times.

Somma Law PLLC is a Debt Relief Agency under federal law. We help people file for bankruptcy relief under the Bankruptcy Code.